Operational Programme for Industrial Development

Introduction

1. The Operational Programme for Industry 1994 - 1999 was introduced with the objective of promoting the development of a strong internationally competitive enterprise sector comprising both indigenous and non-indigenous companies which will make the maximum contribution to self-sustaining employment growth.

2. Four key aims were identified:

• Upgrading and improving the capabilities and capacity for indigenous firms and personnel.
• Attract new inward investment and develop the base of non-indigenous industry in Ireland.
• Build up the marketing capabilities within firms.
• Enhance research and technological development.

3. Eight sub-programmes of activity were proposed to address:

• Indigenous industry.
• Inward Investment
• Research and Development
• Market Development
• Gaeltacht Development
• Food Industry
• Land and Buildings
• Technical Assistance

4. Funding for the Programme was provided from the European Union from ERDF, ESF, and EAGGF funds, from the Irish Exchequer and from the private sector.

Strategic Context of the Operational Programme

5. The Operational Programme for Industry 1994 - 1999 was introduced after a period of strong industrial growth and expanding exports. These trends continued, and improved during the period 1993 - 1996. Economic indicators as identified under the Maastricht Treaty showed a constantly positive trend These achievements resulted in steady employment growth. This was accomplished against a background of slower international growth.

6. Since the commencement of this operational programme, a number of strategic documents have been published:

• Programme for Competitiveness and Work - an agreement between the Government and the Social Partners for the period 1994 - 1996.
• Task Force on Small Business - 1994.
• Growing and Sharing our Employment - Strategy Paper on the Labour Market (1996).
• Shaping Our Future - Forfás (1996)
• Economic Implications for Ireland of EMU - ESRI (1996)
• White Paper on Science and Technology (1996).
• Delivering Better Government - a Programme for Change in the Irish Civil Service.
• Growth, competitiveness, employment - the challenges and ways forward into the 21st Century - EU Commission White Paper (1994).

7. These strategies emphasised an open competitive economy with de-regulated services and efficient Government.

8. Internationally, at EU level and more widely, similar policies are being pursued and given effect through:

• The Maastricht Treaty which set out the path towards economic monetary union. Economic monetary union is now expected to be achieved by 1 January 1999.
• Enlargement of the European Union, with Austria, Finland and Sweden joining the community in 1993.
• Agreements between the EU and Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, Estonia, Latvia and Lithuania.
• Uruguay Round Gatt agreement in 1994.

9. Industry is adopting an increasingly global view of production, logistics and marketing. This is evidenced in increased flows of capital and FDI and supported by improved technologies and reducing trade barriers.

10. This environment presents significant opportunities for a flexible, highly skilled, cost competitive economy. However, failure to compete effectively will have inevitable consequences for growth and employment.

Performance of Irish Industry

11. Performance against target (where the information is available) for key programme indicators shows that many of the key targets set for 1999 have been achieved by 1996.

12. Within this overall achievement there has been considerable variation in the level of achievement between individual sectors and between indigenous and foreign owned industry. Much of the growth in employment is due to growth in electronics industry and non-manufacturing grant-aided industry.

13. There was some increase in employment (4.2%) in Irish owned manufacturing firms in the period 1993 - 1995. However, during the same period employment in foreign owned manufacturing firms grew by 12%. During the period total jobs grew by 16,310 of which 11,426, or 70% were in foreign owned firms.

14. Exports by Irish owned manufacturing companies grew by £811m (23%) between 1993 and 1995. Exports by foreign owned firms grew by £3.741m or 34.7%.

15. During the period of the Operational Programme, production in the manufacturing sector expanded by 47.3%, mainly in chemicals, metals and engineering, paper and printing, and food.

16. An analysis of the performance of grant aided companies showed that these companies increased employment between 1993 and 1995 by 11% while employment in non-grant aided companies declined by 6%. Grant-aided foreign owned firms performed better than Irish owned firms.

	Increase in Employment 1993 - 1995
Grant Aided:
Irish owned	+9%
Foreign owned	+13%
Non-Grant Aided
Irish owned	-7%
Foreign owned	-5%

Overall Assessment of Operational Programme

17. It is clear that main performance indicators set out in Section 19 of the Operational Programme have already been achieved or are close to achievement, as shown in Section 3 of this report. The Operational Programme has contributed to this success, as evidenced in Section 4. Other independent factors clearly also have a bearing on the outcome. The key question for this mid-term review is how the Programme can be adapted for the remaining three years of its life to achieve even greater or more relevant impact.

18 The general principles which we recommend to achieve this aim are:

• New and updated goals for the period to 1999.
• Better targeting of expenditure on strategic goals, with higher levels of funding for fewer targets.
• Improvement of impact measurement.
• Greater co-ordination and consistency between agencies.
• Some reallocation of funding.
• A more proactive approach by Government and agencies where measures are not achieving results.
• Increased market involvement

In the following paragraphs we identify the specific initiatives, above Measure level, recommended to achieve this realignment.

Goals

19 With the 1999 targets already substantially achieved, revised goals should now be established at Programme and Sub-Programme level, which are appropriate to the environment and the resources.

20 At Sub-Programme level we recommend that the basis for targets should be related to the impact of the Sub-Programme and its measures and sub-measures on the companies directly affected. Thus, job creation in indigenous industry would be measured by the jobs created in companies directly supported under this sub-programme. Targets for the period to 1999 will have to take into account a number of key factors including:

• Partnership 2000 - the new agreement between Government and social partners on taxation, pay and other social supports.
• The commitment of the Government to join European Monetary Union on 1 January and the continuing commitment to the Maastricht criteria.
• Likely stability and growth in the economies of our main trading partners, UK, other European countries, and the US.
• Possible constraints in the availability of certain human resource categories.
• The availability of continuing non-co-financed Public Expenditure where co-financed Public Expenditure has been exhausted. This applies particularly to Fixed Asset Support and Employment Grants for Indigenous Industry and Inward Investment.

21 Given that the emphasis in the first two and a half years of the Operational Programme has been the development of capacity rather than capability, there is a need to focus particularly on relevant goals for the building of strategic capabilities.

Alignment of Sub-Programmes and Measures

22 We believe that the overall sub-programme structure for the Operational Programme should be maintained for the remaining years of the OP. However, within this overall framework there is a case for realigning individual measures and planned expenditure. We have proposed changes in funding and criteria for individual measures and sub-measures within the OP planned expenditure framework. Non co-funded public expenditure, in particular for fixed asset support and employment grants under different sub-programmes is substantially exceeding OP forecast. Continuing activity under these measures depends on continuation of the current level of non co-funded public expenditure. Clearly these levels of over-spend must come under Exchequer scrutiny.

Sub-Programme 1. Indigenous Industry Development

23 Actual expenditure under this Sub-Programme by mid-1996 is running at 124% of forecast for the period. However, there is considerable variation in expenditure under individual measures, as shown on the following table:

Human Resource Capability Development	Mid-1996 Actual	Mid-1996 Forecast	Actual % of Forecast
	£m	£m	£m
Company Development	1.863	2.650	70
National Linkage Programme	1.444	1.877	77
Studies	0.231	0.463	50
Business Innovation Centres	3.103	4.635	67
Irish Productivity Centre	1.152	1.710	67
Graduate Placement	0.897	1.250	72
Mentor	1.471	0.650	226
Film Industry	1.571	10.100	16
National Software Development	1.189	0.989	99
	12.921	24.324

Development of Competitive Capability	Mid-1996 Actual	Mid-1996 Forecast	Actual % of Forecast
	£m	£m	£m
Management Development Support	5.983	4.157	144
Management Development and Strategic Competencies	0.129	2.109	6
Delivery of Management Training	-	-	-
Training Support	0.656	5.200	13
Employment Grants	17.288	10.823	160
Film Industry Human Resource Development	-	0.76	-
Development of Crafts Industry	0.613	0.563	89
	24.604	28.058

Capacity Expansion	Mid-1996 Actual	Mid-1996 Forecast	Actual % of Forecast
	£m	£m	£m
Fixed Asset Support	117.368	42.001	279
Equity	89.008	68.251	13.0
Enterprise Development Programme	16.848	13.125	128
Business Partnerships	5.265	4.680	113
	228.489	128.056

Venture Support and Traditional Industry		Mid-1996 Forecast	Actual % of Forecast
	£m	£m	£m
Seed and Venture Capital	-	25.000	-
Software Applications Development Initiative	-	4.900	-
Promoting Adjustments	-	9.325	-
		39.225

24 While relatively modest amounts of money are proposed for Measure 1, Development of Competitive Capability (10% of total Indigenous Industry Sub-Programme), most sub-measures are underspent.

25 In the case of Measure 2, Human Resource Capability, employment grants represent some 45% of the total and is heavily overspent. It is arguable that employment grants do not have a direct impact on the development of capability and should be excluded from this measure. Four of the remaining five sub-measures within this measure are underspent.

26 Measure 3 - Capacity Expansion, which has received some 60% of the funding is overspent at mid-1996 stage by £100m.

27 Measure 4 - Venture Support and Traditional Industry has incurred no spend at mid-1996.

28 In overall terms, it is evident that actual Sub-Programme expenditure is skewed towards capacity expansion and employment grants.

29 A variety of reasons have been attributed to the underspend on sub-measures, eg:

• The time required to start new measures or to process approaches
• Institutional (film industry measures)
• Too tightly specified conditions (Software Application Development Initiative).
• Lack of appropriate skills, (Management Development and Strategic Competencies).

30 Whatever the reason at individual sub-measure level, the overall impact is likely to be a failure to avail of the resources to address key deficiencies in capability. If allowed to continue this would have to be regarded as an extremely serious failure in the light of the overall aims of the Programme.

31 A number of questions are raised in the detailed review of the Sub-Programme in relation to the impact of individual sub-measures. A number of suggestions are made to improve monitoring and performance of the sub-measures.

Sub-Programme for Inward Investment

32 This Sub-Programme has been successful in securing high levels of Foreign Direct Investment (FDI) particularly in the Electronics Industry and in Grant Aided Service, against strong competition. There is, however, concern that a too great a focus on current areas of opportunity may create a long-term imbalance in sectors and sources of FDI. We recommend that defined resources should be allocated to strategic markets and sectors which may give lower short term results.

33 There are two measures under this Sub-Programme:

• Fixed Asset Support.
• Human Resource Development:
• Training Grants
• Employment Grants

34 While there is significant overspend under these Sub-Programmes, continuation of the Sub-Programme would appear to be essential as FDI is the key driver of growth, employment and exports.

35 The value and impact of Sub-Measure 2.1, Training Grants, is inadequately monitored and there is significant evidence that training grants are, in effect, a generalised subsidy to attract investment rather than an investment in human capability development. A number of recommendations are made in respect of this sub-measure to improve its effectiveness.

Sub-Programme for Research and Development

36 There has been significant underspend in this Sub-Programme to mid-1996 (45% of forecast). However, it is believed that, on the basis of projects now approved, actual expenditure will catch up on target. Despite this the two quantified targets were surpassed by 1995, the second year of the OP.

37 There have been a number of developments since the Sub-Programme was initiated including the report of the Science, Technology and Innovation Council and Task Force; the publication of the White Paper on Science Technology and Innovation and the amalgamation of EOLAS into Forbairt.

38 There is scope for increased targeting through a sharper definition of the companies being addressed, encouragement of new relationships between industry and universities, adjusted grant rates for higher priority activities, and the introduction of bidding for funding. Technology based innovation in non-manufacturing companies should be supported. In addition, there is scope for the realignment of measures and sub measures in the Sub Programme.

Sub-Programme Market Development

39 Expenditure under this Sub-Programme is broadly in line with target. However, within the overall Sub-Programme Measure 1 - Market Information and Promotion has been underspent to the benefit of the two other Measures - Marketing Expertise and Advice and Marketing Investment. One activity, marketplace services and advice, not included in the OP is now being measured and reported separately. Indigenous industry exports have achieved growth rates of 12.1% and 16.9% in 1994 and 1995 combined with a 9% OP target and are likely to achieve the 1999 target. Irish share of EU and World markets are already ahead of 1999 targets.

40 New targets have been set by the Department of Tourism and Trade for 1999.

41 In the light of the many changes in the international marketplace, and in Ireland, and the challenges of Economic Monetary Union, we recommend that ABT review its overall strategy for the support of indigenous Irish industry.

Sub-Programme Gaeltacht Development

42 The six year target of the Gaeltacht Sub-Programme has been largely achieved at the mid-way point. However, there is still a relatively high level of job turnover. Expenditure to date under the OP is running at 178% of forecast at this stage.

43 Against this background, new targets are required for the period to 1999. More detailed targets than gross new jobs should be developed, taking into account sectors, skills, sustainability, regional factors, and cost per job.

44 The Sub Programme should be focused on the key structural difficulties of the Gaeltacht regions and on strategic industry and skill requirements.

Sub-Programme for Food Industry

45 The main features of the implementation of the Food Industry Sub-Programme is the continuing underspend under Measure 1 and overspend under Measures 2 and 4. There is a significant shortfall against target for beef and cheese output.

46 We recommend that grant aid to primary processing under Measure 1 should cease except in the context of industry restructuring or an industry development plan. We recommend that industry development plans should be prepared for Cheese, Prepack Consumer Foods and Food Ingredients. We recommend a reallocation of funding between Measure 1 and Measures 2, 3 and 4. We also recommend that institutional R&D should be refocused on enhancing the whole value chain. A new sub-measure for Food Industry and Safety should be considered.

Sub-Programme for Land and Buildings

47 A review of the Property Function for Industrial Development has been undertaken by Forfas. The scope of this study appeared to be confined to Forbairt and IDA Ireland. The conclusions of the report are endorsed by the external evaluator. The strategy, policy and special needs of Shannon Development and Údarás na Gaeltachta in relation to industrial policy should also be reviewed.

Structures and Performance Measurement

48 Arrangements have been put in place to facilitate co-ordination between Agencies, including:

• The Board of Forfás
• Chief Executives Committee of Forfás, Forbairt and IDA Ireland.
• An Interagency Planning Group which includes Forfás, Forbairt, ABT, FÁS and Shannon Development.
• Regional liaison

49 This has resulted in a number of co-ordination initiatives. However, there is still considerable evidence of inadequate co-ordination at operational level in relation to research, strategies, policies, support schemes, performance indicators, definitions, and service delivery.

50 We recommend that the responsibility of Forfás for co-ordination of Agencies should be extended to Shannon Development and Udarás na Gaeltachta. We believe that a more systematic, objective focused, and timetabled approach to the achievement of the fullest possible level of co-ordination is required, rather than the current liaison approach.

51 The performance indicators used to monitor the Operational Programme are not integrated with the performance management systems within the Agencies. To ensure that there is clear focus on OP targets it is essential that the allocation of responsibilities and measurement of related performance within Agencies is related to the targets and performance measures of the OP. Organisational strategy within agencies are, naturally, being continuously evolved. These changes need to be reflected in the OP monitoring system.

52 The Monitoring Committee structure does not adequately deal with the separate issues of:

• Policy and strategy
• Management

53 We recommend a new structure comprised of:

• A Monitoring Committee comprised of EU, Government Department and Social Partner representatives to which the External Evaluator would report annually, and which would deal with policy and strategy issues.
• A Management Committee comprised of Agency Chief Executives who would be responsible for implementation of agreed policies and for proposing policy changes to the Monitoring Committee. This committee would embrace existing Steering Committees and would receive reports from the Internal Evaluator. A separate Management Committee for Food incorporating the current Food Industry Monitoring Committee could be considered.

Conclusions

54 The overall conclusion from the mid-term external evaluation is that the Operational Programme is successful and valuable in the development of Irish industry. Within this overall assessment a number of key weaknesses have been identified and are addressed in our detailed recommendations.

55 We also recommend that a number of steps should be taken now to prepare for the period after the current Operational Programme:

• Sectoral studies should be initiated for key industrial sectors.
• The evolution of the agency structure and resources appropriate to the support of Irish industry after 1999 should be considered.
• The special circumstances of different regions such as major cities, border areas, and less developed regions should be considered.

Acknowledgement

In the conduct of the Mid-Term Review and the preparation of the draft reports, the External Evaluator received the fullest co-operation and assistance from Government Departments, Agencies, Commission and IBEC representatives. Following circulation of the draft report the relevant bodies prepared prompt, detailed commentaries, which were extremely helpful in the preparation of the Final Report.